Independent Report Says Proposed Reforms for Chicago Employee Pension Plans Will Prevent Catastrophe, But Only at Great Cost

CHICAGO, April 18, 2014 /PRNewswire-USNewswire/ -- The proposal to sufficiently fund two pension plans for Chicago city employees will keep them solvent for decades, but at a greater cost than many Chicagoans may realize. This is according to a study released today by East Lansing, Mich.-based Anderson Economic Group.

"The City is on pace to drain the municipal employees' pension fund by 2027. This proposal to keep these funds healthy is feasible and can succeed in staving off this disaster," said Jason Horwitz, consultant with Anderson Economic Group and principal author of the study.

"That said, we should all be aware of the costs. This will only work if the City makes payments even when that becomes difficult."

The report examines in detail the full financial impact over time of the reforms proposed for the Chicago municipal employees' pension fund (MEABF) and the laborers' pension fund (LABF), including:

By 2021, the proposed reform will increase the Chicago city government's annual contribution to these pension funds to $650 million, $450 million more than would be paid in that year under the current plan.

A solution becomes increasingly expensive for each year implementation is delayed. If the city waits five years to enact this reform, the cost to the city in the years 2026 and beyond would be over $200 million higher annually than if the city enacts the reforms in the coming year.

Retiree benefits would increase at a considerably slower rate than under the current plan. The proposed reforms would mean a current retiree's benefit payment would increase only 9 percent by 2024, compared to 34 percent under the current plan.

Contributions deducted from the pay of current city employees for the pension funds will increase from today's 8.5 percent level to 11 percent by 2019. That means $52 million more in total employee contributions to the pension funds in 2019 than under current contribution levels.

Horwitz also said that the proposed reforms will impact retirees more and more over the next 20 years. Total reductions in benefits relative to the current plan will reach 20 percent by 2033.

"The status quo is not a sustainable option. Right now, the solution is painful for all involved. But if we wait, the hole will be deeper and it will require more drastic measures to dig out," said Horwitz.

To produce this report, Anderson Economic Group used publicly available data to perform an actuarial analysis on the pension reforms in Senate Bill 1922, as passed by the state legislature on April 8.

Anderson Economic Group is a public policy and economics consulting firm based in East Lansing, Mich. with offices in Chicago. Specializing in tax analysis, economics, public policy, financial valuation and market research, the firm has analyzed pension reforms for school districts, universities, and business groups. Past clients include businesses, trade organizations, labor unions, public and private universities, and state and local governments. For additional information go to www.andersoneconomicgroup.com.